Financial planning technology and the DOL fiduciary rule

May 24, 2017 by Alex Peter

Financial advisors use financial planning technology to aid compliance efforts.

about the author:

Alex Peter

Product marketing strategist

Alex began his career at Advicent as a mid-market business development representative. He now divides his time between assisting his team and working with enterprise clients. Alex is passionate about FinTech and creating success for his team.

Alexander Acosta recently announced that the DOL fiduciary rule will not be delayed any further. Since the wealth management industry has been focusing on this for so long, I will paraphrase it: The DOL fiduciary rule is coming fast. In three short weeks, the initial implementation of the rule will be upon us and the rule will be fully implemented by January 1, 2018. 

It might be worth noting that, even if the DOL fiduciary rule did get postponed indefinitely, there are now many investors who demand a fiduciary relationship. We have seen this regulatory and cultural shift happen all over the world with RDR in the UK, CRM2 in Canada, and now with the DOL fiduciary rule here in the US.

Advicent’s international position puts us in a unique position to address concerns regarding this regulation. We have seen the writing on the wall for some time. We have encouraged advisors to stay the course time and time again.

At the core of this regulation is a need to understand clients better and to develop a holistic understanding of their needs in order to present them with a product, or set of products, that will help them achieve their goals. To this extent, we have identified eight key functionalities that a firm can put in place to achieve compliance.

These functionalities play pivotal roles in The Compliance Blueprint – a strategy that we have developed for firms to leverage Advicent software to maximum effect in light of the DOL fiduciary rule.

Data gathering

By using data collection coupled with external account aggregation, advisors will be able to gather thorough and in-depth financial information to gain a holistic view into their clients’ financial situation. This data collection must include more than just numerical data; it must also include qualitative data regarding the risk tolerance questions, as well as questions to determine the goals and priorities of a client. By collecting this data, an advisor will be armed with the information they need to act in their clients’ best interest.

Comprehensive planning

Providing a comprehensive financial plan is the simplest and most efficient way to justify a product recommendation or investment strategy. By keeping financial planning at the core of the relationship, an advisor is able to confidently recommend investment strategies by showing a client how those recommendations are in their best interest by empowering them to achieve their goals. Ultimately, through the vector of a comprehensive financial plan, advisors are able to show how the recommendations they make are in the best interest of their clients.

Scenario management

Scenario management is a critical strategy to showing a client how a different market situation could affect their future goals – including retirement. Various scenarios must be illustrated to demonstrate to a client that advice being given is not only suitable, but also in their best interest to meet their needs. Different scenarios will allow an advisor to illustrate different product effects on different market changes that could take place in the future and should be part of any advisor’s recommendation arsenal.

Transparent reporting

Transparent client reporting – either through a web-based portal or through a PDF or a printed document – should create transparency around the data used for recommendations and the data gathered for projections. This reporting allows advisors to provide a more holistic view into the recommendations and unique situations that those clients are planning for.

Recommendation rationale

Functionalities such as data gathering, cash flow analysis, and comprehensive planning are a few ways in which advisors can demonstrate the reasoning behind recommendations. However, not all clients’ situations are that straightforward. For these unique situations, Advisors can enter additional annotations that can explain why — in their own words — a recommendation would serve the best interests of a client. By inputting this text (which is then archived in perpetuity), an advisor or firm can more easily justify a recommendation based on the circumstances that took place and cannot be re-experienced or witnessed by an independent auditor. This qualitative text entry — coupled with timestamps, strong documentation, and inclusion within an organization’s compliance processes — makes a strong case for compliance.

Complete documentation

In many cases, additional documentation such as specialized contracts or other types of agreements should be included in client documentation. Considering the importance of security and adequate archiving, a secure document storage system must be utilized. These documents can then be uploaded directly into a financial plan through client reporting to provide additional context for strategies and recommendations.

Compliance workflows

Each firm has different workflow strategies. In light of the DOL fiduciary rule, these workflow requirements should be implemented by any software provider that a firm partners with. In order to meet the complex needs of large organizations, these workflows should be both flexible and scalable, allowing different strategies for different teams within the same organization. When these workflows are documented and tracked, compliance becomes much easier for these organizations to attain. When the workflows become mandatory within their field team’s tools, both process and compliance becomes consistent and repeatable.

Progress reporting

By continually analyzing plan progress, advisors can make the correct alterations and future recommendations in support of their compliance efforts. Progress reporting allows an advisor to assess how prior recommendations have performed and whether or not they led to positive results for clients. Whether comparing previous investment recommendations or more complex comparisons regarding recommendations in the context of a portfolio, progress reporting enables an advisor to make a more educated recommendation that meets the new fiduciary expectations.

Click here to learn how the Compliance Blueprint from Advicent can empower your firm to increase transparency with clients and streamline the compliance workflow, all while keeping financial planning at the core.